The world of investments has a language all its own, one that may be confusing to the new (and sometimes even the experienced) investor. Many of the terms used have been passed down over the years from the early days of Wall Street trading. Others are new, brought on by the expanding array of investment choices available today.
This is not a comprehensive list of terms you will encounter as an investor. It should, however, help you understand the terminology used for your transactions, products you consider and monthly statements you receive.
You can use this list for those times when you need a quick reference guide. Your A.G. Edwards Financial Advisor is also a good resource for assistance with these investment terms.
Accelerated death benefit: Benefits available with some life insurance policies that offer early payout (before death) in situations such as long-term, catastrophic or terminal illness.
Accrued interest: The amount of interest due on a bond since the last interest payment was made. Buyers of existing bonds pay the market price plus accrued interest.
Administrator: A court-appointed individual assigned to handle the estate of someone who dies without a will.
Adjustable life insurance: Life insurance that allows the insured to make changes to the policy, such as raising or lowering the face value, changing the amount of the premium, or adjusting the period of protection and length of the premium payment period.
Aggressive growth funds: Mutual funds with aggressive investment strategies, often investing in companies that are positioned for rapid growth and often involving a higher amount of risk.
All-or-none: A buy or sell order for stock that instructs the broker to either fill the entire order during a specified time period or not fill it at all.
Alternative minimum tax (AMT): A federal income tax calculated on specific tax benefits or preferences, such as interest income received from certain municipal bonds. To ensure that individuals taking advantage of such benefits pay at least a minimum amount of tax, the AMT applies whenever it is greater than a person's taxes calculated without these benefits.
American Depositary Receipt (ADR): A negotiable certificate issued by a U.S. bank representing ownership of a foreign security and traded in U.S. securities markets.
Annual dividend yield: The annual rate of return (expressed as a percentage) on a dividend-paying investment calculated by dividing stock price by the annual dividend amount per share.
Annual exclusion: The annual amount a donor may gift per recipient (up to $11,000 in 2002 or $22,000 if spouse joins) as indexed for inflation and free of tax as long as the gift represents a present interest in the property (i.e., the recipient must have an immediate right to use the property).
Annuity: A contract between an insurance company and an individual in which a sum of money is deposited for a specified amount of time. During the accumulation phase, the funds grow tax deferred. During the income phase, income is paid for a specified amount of time.
Applicable credit/applicable exclusion amount: An offset of estate taxes for an individual. The applicable credit for 2002 and 2003 is $345,800. A transfer of $1 million is protected by the $345,800 credit and is referred to as the applicable exclusion amount.
Arbitrage: Attempting to profit from price differences of the same security, currency or commodity when it is traded on different markets or in different forms.
Ask: The lowest price at which someone is willing to sell a security.
Asked or offering price: The current price at which a security may be bought. It is the lowest price any seller will accept at a given time. In the case of a mutual fund, it is the net asset value plus the sales charge, if any. This is also known as the offer price.
Assets: Any property of economic value (that can be converted to cash) owned by an individual or organization. Examples include cash, securities, accounts receivable, inventory, equipment, real estate, etc. In the financial services industry, the three basic asset classes are stocks, bonds and cash.
Asset allocation: The division of investments among different categories of assets, such as stocks, fixed-income investments, real estate and cash equivalents. Asset allocation is designed to help offset risk.
Asset allocation funds: Mutual funds that feature a mix of stocks, bonds and cash equivalents to help offset the risks of investing.
Automatic reinvestment: A shareholder-authorized arrangement in which mutual fund dividends or capital gains are used to purchase additional shares, rather than being distributed to the shareholder. Even though you never see the dividends or capital gains, the funds are still subject to income taxes.
Back-end load: A sales charge or commission paid when an individual sells an investment.
Balanced funds: A mutual fund designed to help preserve the initial principal invested and provide current income and long-term growth by buying a combination of stocks, fixed-income investments and cash equivalents.
Bear market: A prolonged period during which security prices are generally falling, usually by 20% or more. Opposite of bull market.
Beneficiary: The recipient of an inheritance, annuity or life insurance proceeds; or person designated to receive income or principal from a trust.
Beta: A quantitative measure of the volatility of a given stock, mutual fund or portfolio relative to the overall market. A beta above 1 is more volatile than the overall market, while a beta below 1 is less volatile.
Bid: The highest price anyone will pay for a security at a given time.
Bid or sell price: The current price at which a security may be sold.
Blue chip: The common stock of a company known nationally for the quality of its products or services and having a long history of sustained earnings and dividend payments.
Blue Sky laws: State regulations governing the registration and sale of securities and mutual funds, designed to protect investors from fraudulent or unscrupulous actions.
Bond: A debt instrument in which the issuing authority promises to pay the bondholders a specified amount of interest for a specified length of time and repay the principal invested on a given maturity date.
Bond insurance: Insurance purchased by an issuer for either an entire bond issue or specific maturity dates guaranteeing the payment of principal and/or interest to investors.
Bull Market: A prolonged period during which security prices are rising, usually by 20% or more. Opposite of bear market.
Buy: Indicates an investor wants to obtain ownership of a security. Also called buy order.
Buy-sell agreement: An arrangement used by businesses to sell interests of a deceased or disabled business owner to the remaining partners at a predetermined price or using a predetermined formula.
Call: A right to buy a specific asset at a predetermined price until a certain date. In the case of a bond, it is the issuer's right to repurchase an issue of bonds at a certain price on or after a specific date before the maturity date.
Capital appreciation: The increase in value of an asset.
Capital gain or loss: Profit or loss from the sale of an investment.
Cash account: A brokerage account that requires the customer to pay the full amount due by the settlement date for securities purchased.
Cash equivalents: Relatively safe and highly liquid investments, such as Treasury bills (T-bills) and money market funds, that can be easily converted to cash.
Cash Value: The equity value of a whole life insurance policy that is available to the policy owner as a loan or upon cancellation before it becomes payable upon death or maturity.
Certificate of deposit (CD): Time-deposit investments issued by a bank or savings and loan with a stated date of maturity and interest rate.
Charitable lead trust: A trust that makes payments to a charity for a period of time. The remainder goes to a family member or other beneficiary.
Charitable remainder annuity trust (CRAT): A trust that pays a fixed amount of income annually to a non-charitable beneficiary. The remainder goes to charity.
Charitable remainder unitrust (CRUT): A trust designed to permit periodic payment of a certain percentage of the fair market value of the trust to a noncharitable beneficiary. The remainder goes to a charity.
Closed-end fund: Closed-end funds are similar to mutual funds but have some significant differences. Closed-end funds do not continuously offer their shares, as mutual funds do. After an initial public offering, the shares trade in a secondary market such as the New York Stock Exchange or the NASDAQ Stock Market. In addition, the price of closed-end funds is determined by the market and may be greater or lesser than the share's net asset value (NAV). The price of a mutual fund is the net asset value.
Collateralized mortgage obligation (CMO): A mortgage-backed security collateralized by residential mortgages that are commonly guaranteed by government agencies and government-sponsored enterprises. (See mortgage-backed security.)
Common stock: Securities that represent an ownership interest in a corporation. Shareholders have the right to vote on major decisions (usually one vote per share owned). In the event a company is liquidated, common stockholders are last in line to receive any distribution of assets. However, to offset this risk, common stockholders generally have the greatest potential to benefit from price appreciation. (See stock.)
Community property: Property acquired during marriage in which both husband and wife have an undivided one-half interest. Not more than half of the property can be disposed of by a decedent's will or trust. Applicable in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin and Alaska (if elected).
Compounding: The increase in value of an investment resulting from the combination of the principal earning interest and that interest earning more interest.
Confirmation: Written acknowledgment of a security trade naming the specific security, price, commission or fee, and trade date of the transaction.
Conservator/guardian: A person or trust company appointed by a court to manage the assets and/or personal affairs of a minor or disabled person.
Contingent beneficiary: A person(s) who is entitled to receive the benefits of an insurance policy if the primary beneficiary is ineligible to receive the benefits or dies before the insured.
Corporate bond: A bond with a stated interest rate and maturity issued by a corporation.
Corporate bond funds: Mutual funds that invest primarily in long-term corporate bonds, passing the income from these securities to stockholders.
Corporate trustee: An institution that serves in a fiduciary capacity for a trust, such as an executor, administrator or trustee.
Coupon or "bearer" bond: A nonregistered bond in which the interest coupons are attached to the certificate, to be clipped as they come due and presented by the holder for payment of interest. These types of bonds are no longer issued, although some issues remain outstanding.
Credit shelter trust: An estate-planning tool that allocates part of an individual's estate into a separate trust with the remainder of the estate passing to the surviving spouse. The trust can help minimize or eliminate estate taxes due upon an individual's death or death of a spouse.
Crummey trust: A trust that provides a Crummey power to the beneficiary giving him or her a right to withdraw funds for a limited period of time. A Crummey notice must be given to the beneficiary notifying him or her of the funds and the right to withdraw them. This provision is a necessary component for some irrevocable trusts (including life insurance trusts) to qualify gifts for an annual exclusion amount exempt from estate taxes.
Current yield: The annual rate of return on an investment based on the income received during a year compared with the investment's current price.
CUSIP number: The individual identification number assigned to most securities in the United States.
Custodial account: An account created for the benefit of a minor with an adult as the custodian.
Day order: A buy or sell order that automatically expires at the end of the day's trading session if it is not executed.
Death benefit: The payment made to a beneficiary of an annuity or insurance policy upon the death of the policyholder.
Defined benefit plan: A company retirement plan, such as a pension plan, in which a retired employee receives a fixed amount on a regular basis from the employer (based on salary history and years of service).
Defined contribution plan: A company retirement plan, such as a 401(k), in which the employee elects to defer a portion of his or her salary into the plan, directing the investments of those dollars and bearing the investment risk.
Defined portfolio: An investment company that invests in a professionally selected portfolio of bonds and/or stocks. Unlike a mutual fund, the portfolio's investments are fixed over the life of the trust, are not managed, and have a stated or known maturity. Units of the trust's investment portfolio are sold to investors through Financial Advisors. Also called a "unit investment trust."
Derivative: A highly complex type of investment whose value is derived from another underlying asset. For example, options are derivatives because the option has an underlying stock, commodity or other asset on which its price is based.
Dilution: The change in earnings per share or book value per share, resulting from the sale of additional shares.
Discount: The amount by which a bond is priced below its par value (face value). (See premium.)
Discretionary: An account in which a Financial Advisor can buy or sell investments based upon the account holder's investment guidelines without the account holder's prior knowledge and consent.
Distribution: The payment of a dividend or capital gain.
Diversification: The allocation of assets among various types of investments (stocks, bonds and cash), industries and company size. A strategy to help offset risk.
Dividend: The distribution of corporate profits in cash or stock to shareholders, usually paid quarterly.
Dividend reinvestment: An authorized arrangement in which cash dividends are automatically reinvested in additional shares of stock, usually without a fee and sometimes at a discount, increasing the amount of stock in the account. Those dividends are still subject to income tax.
Dollar cost averaging: A system of purchasing securities at regular intervals, usually each month, with a fixed dollar amount. This results in the purchase of more shares when prices are low and fewer shares when prices rise.
Dow Jones Industrial Average (DJIA): The most widely recognized market indicator, made up of 30 large and actively traded industrial stocks.
Dynasty trust: A generation-skipping trust that, because of favorable laws in certain states, may continue in existence forever, benefiting generation after generation of beneficiaries.
Earnings: The amount of profit realized over a given time period.
Earnings per share (EPS): The amount of reported income on a per-share basis, calculated by dividing total earnings by the number of outstanding shares.
Earnings per share date: Date of the last earnings announcement.
Emerging-markets funds: Mutual funds that seek growth by investing in securities from countries that are still developing their industrial base.
Equity income funds: Mutual funds that invest in stocks and seek a high level of current income while attempting to minimize risk.
Estate: All assets a person owns at the time of death, such as securities, real estate, interests in business, life insurance, physical possessions and cash.
Estate tax: The tax owed on the assets of a deceased person before the assets are transferred to heirs.
Exchange: A system for the organized trading of securities. The major U.S. exchanges are the New York Stock Exchange, American Stock Exchange and Chicago Board Options Exchange. There are also regional exchanges throughout the country.
Ex-dividend: "Without dividend;" the buyer of a stock selling ex-dividend does not receive the recently declared split or dividend. After the ex-dividend date, the stock tables include the symbol "x" following the stock name.
Face value: The stated value of a security as displayed on the certificate.
Fiduciary: A person, such as a trustee, executor, personal representative or administrator, who is legally required to act in good faith and in the best interest and trust of a beneficiary or minor.
52-week high: The highest price at which a security has traded within the previous 52 weeks.
52-week low: The lowest price at which a security has traded within the previous 52 weeks.
Fill or kill (FOK): Instructions that state the entire investment order must be filled immediately in its entirety or canceled.
529 plan: An education savings vehicle that lets earnings accumulate tax deferred until they are withdrawn for qualified educational purposes. Currently withdrawals for qualified expenses are tax-free. Some states also provide tax advantages for this type of plan. Contact your tax advisor for more information.
Fixed annuity: An annuity policy in which the issuing insurance company guarantees a fixed interest rate for a specified amount of time.
Fixed income securities: Debt securities that pay specific interest rates on borrowed money, such as bonds, money market instruments and preferred stock.
401(k) plan: A type of retirement plan that lets employees make pretax contributions from earned income to a tax-deferred investment account selected by their employer and reduces their taxable income. Employers can match some or all contributions subject to limits.
403(b) plan: A qualified retirement plan similar to a 401(k) plan that is designed for employees of nonprofit organizations.
Front-end load: A sales charge or commission paid when an individual buys an investment.
Fully discretionary: All decisions are made by the client or with the client's permission.
Futures: Contracts traded on an exchange specifying a future date of delivery or receipt of a specific commodity at a prearranged price.
Ginnie Mae: A mortgage-backed security issued and backed by the Government National Mortgage Association (GNMA), an agency of the federal government. (See Mortgage-backed security.)
Global equity funds: Mutual funds that invest primarily in equity securities of issuers located throughout the world, including the United States.
Good 'til canceled (GTC): An order to buy or sell a security that remains open until it is either executed or canceled. Typically, there is a limit of 60 calendar days.
Government bond: A direct debt obligation of the U.S. government, including Treasury bonds, notes, bills and savings bonds.
Government bond funds: Mutual funds that invest primarily in a blend of U.S. government-backed securities.
Grantor: A person who establishes a trust; also called a donor, settler, creator or trustor.
Growth-and-income funds: Mutual funds that seek to provide both growth and income, often investing in companies that have earnings growth as well as dividends.
Growth funds: Mutual funds that invest in stocks of companies that are believed (or "thought") to have long-term growth potential.
Immediate or cancel: Instructions to immediately fill as much of a customer's order as possible and cancel any part remaining.
Index: A benchmark used to measure financial or economic performance.
Indexing: A strategy for choosing securities so that a portfolio mirrors the performance of a market index.
Index mutual funds: Mutual funds that try to mirror the performance of a market index.
Industrials: A general category of firms in the business of manufacturing products. (Utility, transportation and financial services companies are excluded from this category.)
Inflation: An overall increase in the cost of goods and services in an economy.
Individual retirement account (IRA): An account that allows individuals to set aside earned income in a tax-deferred retirement plan. For some individuals, contributions are deductible from taxable income.
Interest: Payments a borrower makes to a lender for use of the lender's money (e.g., a corporation pays interest to its bondholders).
International equity funds: Mutual funds that invest primarily in stocks of issuers located outside the United States.
International global bond funds: Mutual funds that invest primarily in debt securities of companies or countries outside the United States or both inside and outside the United States.
Interval Fund: Interval funds are classified as closed-end funds but they are very different from traditional closed-end funds in that their shares typically do not trade on the secondary market. Instead, their shares are subject to periodic repurchase offers by the fund at a price based on net asset value. Because of this periodic repurchase structure, interval funds have limited liquidity. Interval funds are also permitted to continuously offer their shares at a priced based on the fund's net asset value.
Intestacy: The method for distributing the property of an individual who dies without a will.
Investment objective: General description of the mutual fund's desired investment result and type of securities in which the fund invests.
Last split date: The last date on which a stock's share price changed to reflect a split in the security (division of shares).
Last trade: The price at which the last trade was executed; the closing price at the end of the trading period.
Last trade date and time: The date and time the security was last traded.
Life insurance: An insurance company contract that pays a beneficiary upon the death of the insured. Some life insurance policies provide a tax-deferred cash buildup (cash value) that can be accessed by the policy owner.
Limit order: An order to buy or sell a stated amount of a security at a specified price (the limit) or better. A limit order to buy would be at the limit price or lower and a limit order to sell would be at the limit price or higher.
Limited partnership: An organization made up of a general partner, who manages the partnership, and limited partners, who invest money but have limited liability to the organization's creditors.
Liquid: Investments that are easily converted into cash.
Liquidation: The conversion of assets into cash.
Liquid investment: An investment that can be easily converted to cash.
Liquid reserve: Personal savings that can be accessed immediately.
Load: The sales charge added to the purchase or sale price of some mutual funds and annuities.
Low: The lowest price a security or commodity reached in a specific period of time, usually a single trading session.
Long: Signifies the net ownership position in a particular security.
Maintenance call: A "call" for additional funds or acceptable collateral to be immediately deposited into your margin account to satisfy the Regulation T and house maintenance requirements for the purchase or short sale of securities or as a result of movements in market prices.
Management fee: A charge paid to a mutual fund's managers for their services.
Margin: Using securities you own as collateral to purchase other securities "on credit."
Margin account: A brokerage account that lets you borrow funds to purchase securities, using your own marginable securities as collateral.
Margin balance: The net open balance in your margin account. If the amount is negative, you owe your brokerage firm this amount. If it's positive, the balance may earn interest.
Margin call: A generic term that refers to both maintenance calls and Regulation T calls (also called Reg T or Fed calls). An investor who receives a margin call is required to deposit additional funds or securities in a margin account either because the equity in the account does not meet the brokerage firm's established minimum equity requirement (maintenance call) or because additional securities have been purchased or sold short.
Margin interest: Interest that is charged daily on the balance of your margin loan.
Marginable: A security that may be used as collateral in a margin account.
Marital trust: A trust that is established for the surviving spouse and qualifies for the marital estate-tax deduction.
Market capitalization: The total value of a company's stock. (Number of outstanding shares times the current value of the stock.)
Market indicators: A variety of indexes that are used to determine the overall direction and strength of financial markets.
Market maker: An individual, corporation, partnership or group of firms that maintains inventory of a specific over-the-counter security and stands ready to buy and sell the security at publicly quoted prices. A market maker helps maintain an orderly market.
Market order: An order to buy or sell a stated amount of a security at the best price available when the order reaches the marketplace.
Market price: The last price or current quote at which a security trades in the secondary market.
Maturity date: The date on which the issuer of a bond or certificate of deposit is scheduled to repay the original investment to the bondholder or CD holder. CD maturities typically range between three months and six years, while bond maturities can range from one day to 30 years or more.
Minimum quantity: A condition of an order that specifies the minimum number of shares to be bought or sold by a specialist. Often used when the buyer or seller will accept a partial fulfillment of his or her order.
Minor's trust (2503c trust): An irrevocable trust that enables a grantor to keep principal and income in a trust for the benefit of a child until the child reaches age 21. Principal and income can be expended for the beneficiary. Accumulated income is taxed at trust rates. Assets included in a minor's trust may be excluded from the grantor's estate if the grantor is not a trustee.
Money market account: A type of savings account that invests the available funds in various short-term securities, attempting to maintain a $1 per share value.
Money market fund: An open-end mutual fund that invests in short-term securities such as Treasury bills, certificates of deposit and commercial paper and seeks to maintain a $1 per share value.
Money market mutual fund: An open-end mutual fund that invests in short-term securities such as Treasury bills, certificates of deposit and commercial paper and seeks to maintain a $1 per share value.
Mortgage-backed security: A bond that represents a share in a pool of mortgages issued by U.S. government agencies, U.S. government-sponsored enterprises or mortgage lenders. Investors receive regular (generally monthly) interest payments and the principal is returned incrementally over the life of the investment. (See also CMO and Ginnie Mae.)
Municipal bond: Also called a muni. A bond issued by a state or political subdivision that pays interest, which is usually exempt from federal and, in some cases, state and local taxes. (See also alternative minimum tax.)
Municipal bond funds: A mutual fund that invests in tax-exempt bonds issued by states and municipalities.
Mutual fund: An investment that lets a group of people pool their assets in a mixed portfolio of securities, such as stocks, bonds or money market instruments. An investment company then professionally manages the assets in the portfolio in an effort to achieve a specified investment objective, such as growth or income.
Mutual fund company: An investment company that pools money from shareholders and invests in a variety of securities such as stocks, bonds and money market instruments.
Mutual fund family: The array of mutual funds offered by a single mutual fund company.
Nasdaq: National Association of Securities Dealers Automated Quotation System, designed for over-the-counter stock trading. Unlike the Amex and NYSE, Nasdaq does not have a physical trading floor. All transactions take place over a network of computers and telephones.
Net asset value (NAV): The per share value of a mutual fund at the end of each day figured by taking the total market value of a fund's assets and dividing the figure by the total number of shares outstanding.
Net change: The amount and direction that a security's closing price has changed since its previous close.
New issue: The first offering to the public of a stock, bond or mutual fund.
No-load mutual fund: A mutual fund that does not charge a sales commission (or load) when shares are bought or sold. Transaction fees may apply.
Nominal rate: The stated interest rate that is paid on an investment. Does not include compounding.
Nondiscretionary: An account in which the account holder must know about and approve all investment transactions.
Odd lot: A unit of trading in securities that is less than 100 shares. (See also "round lot.")
Offer price: See asked price.
Official statement: The document that provides key information regarding a municipal bond new issue.
Operating expense ratio (OER): The proportion of a mutual fund's average net assets required to pay annual expenses (operating expenses, management fees, etc.).
Open: The first price of a given security or commodity at the beginning of trading on any given day.
Open-end fund: A mutual fund with no limit to the number of shares that can be issued.
Open order: An order to buy or sell securities that has not yet been executed or canceled.
Option: A contract that allows an investor to sell or purchase an asset at a fixed price until a specific date. An option to purchase an asset is a call and an option to sell an asset is a put.
Over-the-counter (OTC): A highly sophisticated communications network on which dealers trade securities that are not listed on any exchange.
Par value: For stocks, par value is the value of a security that is stated on the certificate. For bonds, par value is the dollar amount on which a bond's interest is calculated and the amount paid to bondholders at maturity. Par value is also known as face value.
Personal representative: A person who settles a decedent's estate. Sometimes called an executor or administrator.
Portfolio: A collection of various investments held by an individual investor or organization.
Position: The amount of a security that is held in an account or portfolio or owed to another entity.
Pour-over will: A will that transfers assets from the decedent's estate to a previously established trust. A pour-over will is strongly suggested with a living trust document.
Preferred stock: A class of stock that entitles holders to receive dividends before they are paid to common stockholders; dividends are usually fixed. If the company liquidates, preferred stockholders have prior claim on assets over common stockholders. (See also stock.)
Premium: The amount by which a bond sells above its par value. (See also discount.)
Price: The dollar amount at which a security trades.
Price-earnings ratio (P/E): The current price of a share of stock divided by the earnings per share of the issuing firm. The P/E is used to compare stocks selling at different price levels.
Principal: The amount of invested dollars. With an investment in bonds, the principal is generally returned to the investor when the bond matures.
Prospectus: The official document highlighting the key information about securities registered with the Securities and Exchange Commission.
Put option: A contract that gives the buyer the right to sell a number of shares of stock at a specified price until a specified date.
Qualified domestic trust (QDOT): A trust for a spouse who is not a citizen of the United States. The trust lets an individual provide for his or her non-U.S. citizen spouse and defer the estate taxes that would otherwise be due. The non-U.S. citizen spouse has access to the trust income and principal (estate taxes are paid on principal distributions). A QDOT requires a U.S. citizen or domestic corporate trustee.
Qualified terminable interest property trust (QTIP): A special trust in which the surviving spouse is entitled to all income from assets during his or her lifetime but cannot alter the disposition of principal from the grantor's wishes. Upon the surviving spouse's death, assets pass to beneficiaries named by the grantor. QTIPs can be useful in second marriages where there are children from a previous marriage.
Quote: The highest bid and lowest ask price for a security at any given time. Bid is the highest price at which someone is willing to buy a security. Ask is the lowest price at which someone is willing to sell a security.
Rating: A rating assigned to debt securities by independent rating services based on the issuer's ability to meet interest and principal payments.
Real estate investment trust (REIT): A company that owns and manages a portfolio of real estate properties. REITs serve as conduits through which rental income is passed from real estate holdings to shareholders.
Redemption fee: A sales charge or commission paid when an individual sells an investment.
Regulation T call: Also called a Fed call - This is the amount of money or securities an investor must deposit if buying on margin or selling short, as required by the Federal Reserve Board's Regulation T.
Retirement plan distribution: A withdrawal of funds from a retirement plan.
Right: The privilege given to existing shareholders to buy a proportionate number of shares of newly issued stock at a specified and usually discounted price before it is offered to the public.
Risk/return factor: The relationship between an investment's growth potential and its exposure to loss. Typically an investor must be willing to accept greater risk to pursue greater returns.
Rollover IRA: An individual retirement account (IRA) to which you can transfer assets from other qualified retirement plans.
Roth Individual Retirement Account (Roth IRA): A new investment vehicle designed for retirement savings. The Roth IRA offers the opportunity to achieve tax-free growth of investment earnings and make tax-free withdrawals of the assets at retirement or earlier for special purposes. (See also "traditional individual retirement account.")
Round lot: The standard unit of trading in a particular type of security. For stocks, the generally accepted unit of trading is 100 shares. (See also "odd lot.")
Sector funds: A type of mutual fund that invests primarily in one specific industry, economic sector or geographic area.
Securities Investor Protection Corporation (SIPC): A nonprofit organization created by an act of Congress. SIPC provides funds for use, if necessary, to protect customers' cash and securities that are on deposit with a SIPC member firm in the event the firm fails and is liquidated. SIPC currently provides $500,000 in protection for investors' accounts. SIPC does not protect against market losses.
Self-administered living trust (SALT): A revocable living trust for which the grantor is the trustee and makes his or her own investment decisions.
Sell: To transfer ownership of an asset in exchange for money; an order to transfer ownership of an investment to someone else in exchange for money.
Sell short: The act of selling a borrowed stock with the understanding that you'll buy it back later (hopefully at a lower price) and return it.
Settlement date: The date by which either cash (for a buyer) or a security (for a seller) must be delivered to complete a securities transaction.
Share: A single unit of ownership in a company, mutual fund or limited partnership.
Short: A net investment position in a security in which the security has been borrowed and sold but not yet replaced.
Small-cap funds: Stock mutual funds that invest primarily in stocks of small companies (as determined by market capitalization).
Specialist: A member of a securities exchange who is responsible for a given exchange-traded security. The specialist is the person who stands ready to buy and sell shares to maintain an orderly market. He or she is the one other exchange members go to when making stock transactions.
Standard & Poor's 500 Stock Index (S&P 500): A common index or benchmark used to determine the performance or stock price movements of the overall U.S. stock market. The index is made up of 500 stocks, including 400 industrials, 40 utilities, 20 transportation and 40 financial issues.
State municipal bond funds: Mutual funds that invest primarily in municipal bonds issued by one state. Income from these funds is federal-tax-free and sometimes state-tax-free as well.
Stock: A share of ownership in a company. Shareholders are entitled to a "share" in the profits of the company (paid in dividends). (See also common stock or preferred stock.)
Stock dividends: Dividends paid in additional shares of stock rather than cash.
Stock symbol: The unique identification symbol given to every corporation whose stock is traded on a stock exchange or the Nasdaq over-the-counter market.
Stop order: An order to buy or sell a stock when the stock's price reaches or exceeds a specified level.
Stop limit order: A combination of a limit order and stop order. It's a request to buy or sell a specific stock at the market price, but only when the stock reaches or exceeds a price that you specify (called the stop price). Once the stock price reaches your price specification, it becomes a limit order.
Street name: Securities registered in the name of the brokerage firm but credited to the account of a client. A security is held in street name to simplify trading because no certificate delivery or signature is required. In margin accounts, securities must be held in street name.
STRIPS: Zero coupon Treasury bonds issued by the United States at a discount from face value. Interest is paid as a lump sum at maturity.
Surrender charges: Fees for terminating a certificate of deposit (CD), insurance or annuity contract before maturity.
Surrender value or surrender benefit: The amount of cash paid by an insurance company to a policyholder who surrenders (or gives up) an insurance policy.
Tax-deferral: When tax liability is delayed until some time in the future.
Taxable-equivalent yield: The calculation of yield on a federal-tax-free investment so that it can be compared to a taxable investment.
Term insurance: The type of life insurance policy that provides coverage for a specified period of time (e.g., 10, 15, 20 or 25 years) or until the insured reaches the age specified in the insurance policy.
Testamentary trust: A trust created in a will. The trust comes into being only after the testator's/testatrix's death.
Time horizon: The amount of time that you plan to invest a sum of money.
Total return: The total earnings from an investment, including dividends or interest and any profit or loss realized on the liquidation of the investment.
Trade Confirmations: Trade Confirmations are the written statements that follow any "trade" in the securities markets. Confirmations are issued shortly after a trade is executed. They include settlement date, terms and commission.
Trade date: The date on which a transaction is executed.
Traditional Individual Retirement Account (Traditional IRA): An investment vehicle designed for retirement savings. A traditional IRA presents the opportunity for tax-deductible annual contributions and tax-deferred growth of investment earnings.
Transaction fee: The fee charged for completing a transaction.
Transfer on death (TOD): A legal agreement between you and a financial institution that lets you pass ownership of certain assets in your individual or joint account to beneficiaries you choose. The assets bypass probate and go directly to your beneficiaries.
Treasury bill: A short-term debt security of the U.S. government, known as a "T-bill." T-bills are short-term, highly liquid investments that mature anywhere from three months to a year, are sold at a discount and return to their full face value at maturity.
Treasury bond: A negotiable, coupon-bearing debt security with a maturity of more than seven years offered and backed by the full faith and credit of the U.S. Treasury. Treasury bonds pay a fixed rate of interest every six months.
Treasury note: An intermediate-term debt security of the U.S. Treasury that pays a fixed rate of interest every six months and returns its face value at maturity. Maturities range from two to 10 years.
Trust: Fiduciary relationship in which a person, called a trustee, holds title to property for the benefit of another person, called a beneficiary.
Trust administrator: A person in a trust company who manages trust accounts.
Trustee: A person holding legal title to the assets of a trust and who is responsible for management of the trust assets.
12b-1 Fee: A type of fee charged by a mutual fund company to pay for marketing, advertising and distribution services.
Unit investment trust (UIT): An investment company that invests in a professionally selected portfolio of bonds and/or stocks. Unlike a mutual fund, the portfolio's investments are fixed over the life of the trust, are not managed, and have a stated or known maturity. Units of the trust's investment portfolio are sold to investors through Financial Advisors. Also called a "defined portfolio."
Universal life: A type of insurance that combines the characteristics of term life insurance and a tax-deferred savings plan. The insured can pay premiums at any time, subject to certain minimums and maximums, and reduce or increase the amount of the death benefit more easily than under a traditional whole life policy.
Variable annuity: An annuity offering several professionally managed investment portfolios. The investment return will vary depending on the portfolio's investment performance.
Vested: The percentage of ownership in a retirement plan's assets.
Volatility: The extent and frequency of changes in an investment's value.
Volume: The number of shares traded in a security or market during a specified time frame.
Warrants: A type of security that lets its owner buy a specific number of shares of stock at a predetermined price within a specified time frame.
Wealth replacement trust: A trust designed to ensure that heirs receive the value of the estate, which could be depleted by federal estate tax or charitable gifts. A wealth replacement trust usually takes the form of an irrevocable life insurance trust.
Will: A legal document that distributes a person's assets at death under the supervision of a probate court.
Yield: Also known as return; the dividends or interest paid on a security calculated as a percent of the price paid. In the case of a bond, this figure is known as current return.
Yield to maturity: The yield on a bond, taking into account the interest rate, purchase price in relation to par value and number of years left to maturity. For example, if an investor purchases a $1,000 bond for $800, the $200 profit ($1,000 - $800) the owner will receive at maturity will be added to the interest earned when calculating yield to maturity.
Zero coupon bond: A bond that pays no interest to its owner but is issued at a discount to its par value. The money invested in the bond grows at a fixed rate as the interest automatically compounds within the investment. Maturities range from one to 30 years.
